Real Estate Professionals Beware: Are you providing financial advice?4 November 2016 | Real Estate Agents' Negligence
- Meaning of “financial advice”
Over the course of the last 20 years, Australia has witnessed a significant property investment boom. While many real estate professionals can provide property related services to prospective property investors, such property services cannot extend to include the provision of financial advice.
While this may seem uncontroversial, it can often be difficult in practice to draw a distinction between the two types of advice. The NSW Court of Appeal has provided some further guidance on the issue in its recent decision of Park Trent Properties Group Pty Ltd v ASIC  NSWCA 298.
Park Trent Properties Group Pty Ltd (Park Trent) operated as a property investment company and would regularly make recommendations to prospective property investors to:
- exit from their pre-existing industry or retail superannuation funds;
- establish self managed superannuation funds (SMSF); and
- use the funds from the SMSF (and loans taken out by the SMSF) to purchase investment properties.
The Australian Securities and Investments Commission (ASIC) commenced proceedings against Park Trent for providing unlicensed financial advice.
ASIC was successful at first instance and Park Trent sought to appeal the decision on the basis that it was not required to hold a financial services license, because its advice was exempt under regulation 7.1.29 of the Corporations Regulations 2001 (the Regulation).
Specifically, the Regulation deems the provision of certain advice not to be a financial service, including providing advice in relation to “the establishment, operation, structuring or valuation of a superannuation fund”.
In unanimously dismissing the appeal, the Court held that the Regulation:
- only exempts advice of a technical nature (such as advising SMSF on their accounting and reporting requirements); and
- does not exempt recommendations to SMSF members to invest in specific assets or adopt particular investment strategies.
Implications for you
Real estate professionals need to have a clear understanding of the advice they are providing (and are entitled to provide) to prospective property investors. As the decision in Park Trent demonstrates, Australian courts are likely to adopt a robust approach to statutory construction in order to protect the public from companies and individuals seeking to provide unlicensed financial advice.